Waves of Criticism Keeps Rolling In for Citigroup (NYSE: C), JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC) and Others

Recently, there have been grass root attempts at punishing the ‘big bad banks’. Arianna Huffington has been striving to implore savers to move deposits out of them and into local community banks. While supporting local businesses is a noble effort, and one that consumes should strive to do, making a smart financial decision goes far beyond this. What is troubling is not the populist sentiment, but how misguided the advice is.
 
The banking system has also been supported by regulators and the treasury, but as Sorkin so clearly articulates in “Too Big to Fail”, the firms that are large and ‘strategically important’ have a safety net. This safety then means that consumers also have a safety net. The large banks also have more locations, and a greater variety of products, creating convenience for customers, and also, create many jobs.
 
The banks have all been required to purchase extra insurance from the FDIC and refilled it’s coiffers in recent quarters. The FDIC is strong and secure, and this security extends outwards. As such, savings deposits are safer than ever at the large banks. We must remember that when the smaller, regional bank like Washington Mutual was floundering it was the large JP Morgan Chase Bank (NYSE: JPM) that rescued it, even improving the depositors experience in the process.
There is a place for small community banks, and large banks to exist. While many decry the sentiment that banks have been deemed “Too Big to Fail”, the small banks my be “Too Small for Stability”. Of the over 140 banks shuttered in 2009, almost all of these are the community banks. The large banks like Citigroup (NYSE: C), Bank of America (NYSE: BAC), and Wells Fargo (NYSE: WFC) may deserve the vitriol aimed at them, the idea of punishing them by creating a “run” is incredibly misinformed.
 
Big banks deserve the criticism that has been aimed at them, and there is a long way to go before re-building trust. But, financial decisions should be made with the best information available. Financially, the large financial institutions are a better bet for consumers.


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